Corporate leaders must reject Trump’s tariffs

A worker at the Pacific Machinery &Tool Steel Company in Portland, Ore. (Natalie Behring/Getty Images)

ByCharles Koch

March 7

Charles Koch is chairman of the board and chief executive of Koch Industries.

By many measures, America’s economy is strong. Unemployment is down, the stock market is up and consumer confidence is rising. Although far too many barriers still keep a large portion of our population from fully participating in these benefits, we are making real progress.

Several recent policies have contributed to this improvement. They include federal tax reform (which is far from perfect, but is a step in the right direction), the administration’s regulatory reforms and many improvements by state governments. To ensure that this prosperity is shared by everyone, even more policy improvements are necessary.

Widespread and lasting progress requires the free exchange of ideas, goods and services. It is no coincidence that our quality of life has improved over the years as the average U.S. tariff on imported goods has fallen — from nearly 20 percent in 1932 to less than 4 percent in 2016.

A society that embraces free and open exchange not only provides the greatest abundance, it enables the growth of knowledge and life-enhancing innovations that uplift everyone. Just as the United States benefits from the ideas and skills that opportunity-seeking immigrants bring with them, free trade has been essential to our society’s prosperity and to people improving their lives.

The same has been true throughout history. Countries with the freest trade have tended to not only be the wealthiest but also the most tolerant. Conversely, the restriction of trade — whether through tariffs, quotas or other means — has hurt the economy and pitted people against each other. Tariffs increase prices, limit choices, reduce competition and inhibit innovation. Equally troubling, research shows that they fail to increase the number of jobs overall. Consider the devastation of cities such as Detroit, where trade barriers to aid the auto industry did nothing to halt its decline.

The administration’s recent decision to impose major steel and aluminum tariffs — on top of higher tariffs on washing machines and solar panels — will have the same harmful effect. Without a doubt, those who can least afford it will be harmed the most. Having just helped consumers keep more of their money by passing tax reform, it makes little sense to take it away via higher costs.

One might assume that, as the head of Koch Industries — a large company involved in many industries, including steel — I would applaud such import tariffs because they would be to our immediate and financial benefit. But corporate leaders must reject this type of short-term thinking, and we have. If we are to have a system in which businesses can succeed long term, policies must benefit everyone, not just the few.

Unfortunately, tariffs are not the only problem. Our entire economy is rife with cronyism, resulting in regulations and subsidies that are destroying competition, opportunity and innovation. Koch Industries benefits from many of these, as do many established companies, but we consistently work to eliminate them. We only support policies that are based on equality under the law and that help people improve their lives. This is why we successfully lobbied to end direct ethanol subsidies, despite being one of the largest ethanol producers in the United States. It is why we fought against the inclusion of a border adjustment tax in the tax-reform package, even though it would have greatly increased our profits by increasing costs to consumers.

History is filled with examples of administrations that have implemented trade restrictions with devastating results. At the dawn of the Great Depression, the Smoot-Hawley Tariff Act raised U.S. tariffs on more than 20,000 imported goods, which accelerated our decline instead of correcting it. More recently, President George W. Bush’s 30 percent steel tariff led to increased consumer costs and higher unemployment. And President Barack Obama’s 2009 decision to raise tariffs on Chinese tires ultimately burdened consumers with $1.1 billion in higher prices. The cost per job saved was nearly $1 million , not considering all the lost jobs that went unmeasured.

Tariffs will not add thousands of American jobs. Instead, the research shows that, while they preserve some jobs that would otherwise disappear, they reduce many other higher productivity jobs. The net effect will be not more jobs, but lower overall productivity. They also reduce choice, competition, innovation and opportunity. Predictably, after the announcement of the tariff on washing-machine imports, South Korean manufacturer LG Electronics told retailers that it would increase its prices. Tariffs will only perpetuate the rigged system that threatens the very core of our society. When large companies can pressure politicians to force everyday Americans to fork over unearned millions, we should all question the fairness of the system.

Given all of this, it is easy to see why a recent Gallup survey found that nearly two out of three Americans don’t trust our institutions. It’s hard to blame them. To include millions more of our people in true economic progress, our lawmakers must act on behalf of all Americans — not just the privileged few. If they do, I am confident we can regain our citizens’ trust and ensure that America’s best days are yet to come.